According to Mint reports, crypto notices don't follow a single fixed sequence, as explained by Punit Agarwal, Founder and CEO of KoinX. A Section 143(1) intimation is issued automatically after an ITR is processed and usually flags a TDS or Schedule VDA mismatch against Form 26AS or AIS. A Section 139(9) defective return notice, a Section 142(1) inquiry, or a Section 133(6) request for wallet and exchange records can each be triggered independently by different checks run at different points. Agarwal noted that one notice does not automatically lead to another, but failure to respond can result in reassessment under Sections 148A and 148, scrutiny or best judgment assessment under Sections 143(3) or 144, and eventually a tax demand under Section 156.
As reported by Mint, the current wave of crypto tax notices is largely centred on FY 2021-22, the financial year immediately before crypto-specific tax rules took effect in FY 2022-23. According to Agarwal, the most active wave right now involves Section 148A show-cause notices tied specifically to FY 2021-22. These notices are generated by the Income Tax Department's Insight Portal and Compliance Risk Information Unit (CRIU), which cross-checks PAN-linked KYC details, exchange data and bank transactions against the income reported in tax returns. Agarwal highlighted that a recurring issue is that these notices sometimes reflect an investor's gross transaction value rather than their actual taxable gain, which inflates the apparent income significantly.
According to Mint reports, Agarwal highlighted two key provisions that catch crypto investors more often than most expect. Sections 269SS and 269T prohibit accepting or repaying loans or deposits of ₹20,000 or more in cash, including certain P2P crypto transactions settled outside banking channels, with violations attracting a penalty equal to 100% of the cash amount involved. Section 276B applies when an exchange or P2P buyer deducts the 1% TDS under Section 194S but fails to deposit it with the government, leading to criminal prosecution not just monetary penalties. Agarwal noted that cash settlements and delayed TDS deposits are both avoidable, but investors often don't realise they carry this kind of exposure until a notice arrives.
As reported by Mint, Agarwal emphasised that investors should first identify the section under which the notice has been issued, as it determines the response timeline and the documents required. He advised investors to gather their AIS, Form 26AS, and complete transaction records from every exchange and wallet used, and reconcile them with the details reported in their tax return. Where a genuine discrepancy exists, filing a corrected response or an updated return, wherever permitted within the prescribed deadline, can resolve many cases before they escalate further. According to the report, ignoring a crypto tax notice can lead to reassessment, penalties or even prosecution in some cases, making timely reconciliation of records and responding within the prescribed deadline crucial for investors.
